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Why isn’t LsETH pegged to the value of ETH?

Why isn’t LsETH pegged to the value of ETH?

Building with liquid staking tokens (LSTs)

Building with liquid staking tokens (LSTs)

Correlated slashing: a case for diversification

Correlated slashing: a case for diversification

Ethereum's Dencun upgrade: what's next for ETH and liquid staking

Ethereum's Dencun upgrade: what's next for ETH and liquid staking

Report: Leading considerations for staking participation in the evolving crypto landscape

Report: Leading considerations for staking participation in the evolving crypto landscape

Unlock the power of ETH liquid staking with Liquid Collective

Unlock the power of ETH liquid staking with Liquid Collective

Integrating Liquid Collective: how exchanges can unleash the full potential of liquid staking

Integrating Liquid Collective: how exchanges can unleash the full potential of liquid staking

MEV and liquid staking

MEV and liquid staking

Liquid Collective's collaborative approach

Liquid Collective's collaborative approach

Ethereum's activation and exit queues

Ethereum's activation and exit queues

What are Liquid Staking Tokens (LSTs)? Mike Selig and Alison Mangiero discuss at ETHDenver

What are Liquid Staking Tokens (LSTs)? Mike Selig and Alison Mangiero discuss at ETHDenver

The need for enterprise-grade compliance

The need for enterprise-grade compliance

Direct staking design for expanding participation in network security

Direct staking design for expanding participation in network security

The LsETH User Agreement

The LsETH User Agreement

What are Liquid Staking Tokens (LSTs)?

What are Liquid Staking Tokens (LSTs)?

Liquid Collective Roles

Liquid Collective Roles

The need for a liquid staking standard

The need for a liquid staking standard

Liquid Collective Litepaper

Liquid Collective Litepaper

Liquid Collective's Slashing Coverage Program

Liquid Collective's Slashing Coverage Program

What is liquid staking?

What is liquid staking?



Introducing LsETH

For Individuals

Earn network rewards while holding LsETH. It's that simple.

LsETH is a token representing staked ETH plus network rewards.

Learn more

  • Auto-compounding rewards
  • Built-in slashing coverage
  • Secure and transparent
  • Diversified node operators



For Enterprises

Simple staking integrations with LsETH

Liquid Collective's LsETH is a liquid staking token, built to meet the needs of businesses offering staking to their customers.

Learn more

  • Revenue share of rewards
  • Compliance-focused design
  • Enterprise-grade security
  • Node Operator performance SLAs



FAQ



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What is liquid staking?

Liquid staking is a rapidly growing solution for locking up a user's tokens and contributing to the security of proof of stake blockchains. While staking is subject to bonding and unbonding periods (ranging from days to weeks), liquid staking is a way to stake that provides stakers with access to increased liquidity and capital efficiency. Token holders stake their token and receive a programatically generated liquid staking token as evidence of their ownership of their staked token. The liquid staking token can be transferred, stored, traded, and utilized in DeFi or supported dapps while the holder continues to directly participate in securing the network by staking.

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How large is the liquid staking market today?

Liquid staking has been experiencing rapid adoption. In 2023, liquid staking on Ethereum alone grew to represent over 42% of staked ether (“ETH”). Liquid Collective expects to see this trend continue as liquid stakers benefit from increased liquidity and capital efficiency, all while contributing to the security of the underlying network.

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What is Liquid Collective?

Liquid Collective is the secure liquid staking standard: a protocol designed to meet the needs of institutions, built and run by a collective of leading web3 teams. Liquid Collective will be governed in a decentralized manner by a broad and dispersed community of industry participants.

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How does Liquid Collective compare to Lido and other liquid staking solutions?

Other liquid staking solutions have focused on the needs of crypto-native stakers but have not met the requirements of many institutional and enterprise participants. The number of liquid staking protocols solving for staker liquidity has resulted in numerous, relatively illiquid receipt tokens that can only be utilized in certain corners of web3.

Liquid Collective seeks to solve these challenges by developing a protocol that is suitable for institutional stakers and that offers deep liquidity via a unified, standardized solution. Liquid Collective's objective is for this level of liquidity to result in the protocol's receipt tokens (e.g., LsETH) being the most adopted (and thus the most useful) receipt token in web3.

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What is LsETH?

LsETH is a liquid staking token (LST), a token representing staked ETH plus network rewards. When you stake ETH with Liquid Collective you mint LsETH. Your LsETH evidences that you own the staked ETH and any ETH network rewards it earns, minus any fees or penalties.

LsETH allows users to directly participate in ETH staking while also maintaining the ability to use their LsETH elsewhere in decentralized finance (DeFi), or to transfer ownership of their staked tokens by transferring their LsETH. You can think of LsETH like a token that keeps track of your staked Ethereum and its rewards in a straightforward way. Learn more about LsETH here.

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What is the Protocol Conversion Rate?

The LsETH Protocol Conversion Rate is the amount of ETH for which LsETH can be redeemed, and the amount of LsETH that is minted to evidence ETH staked. The value of the Conversion Rate reflects the amount of ETH staked plus any Ethereum network staking rewards that the stake has accrued, minus any potential penalties (e.g., slashing) imposed by the network and protocol service fees. As such the Conversion Rate for LsETH is not fixed 1:1 LsETH:ETH—instead, the Conversion Rate increases over time as the underlying staked ETH accrues more rewards.

The Ethereum network determines the network rewards generated. The Liquid Collective protocol does not determine rewards and fees at its discretion. View the current Protocol Conversion Rate on Dune.

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What is the Protocol Service Fee?

The Liquid Collective protocol charges a service fee set at 15.0% of network rewards. Liquid Collective's service fee is split amongst Node Operators, Integrators, Tech Providers, the protocol's Slashing Coverage Treasury, and the Liquid Collective DAO which comprises a broad and dispersed community of protocol participants. All service fees are distributed in LsTokens, which are the native receipt tokens of the protocol (e.g. LsETH).

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Who receives the protocol service fee?

Liquid Collective's service fee is split amongst Validators, Integrators, Tech Providers, the protocol's Slashing Coverage Treasury, and the Liquid Collective DAO, which comprises a broad and dispersed community of protocol participants. All service fees are distributed in LsTokens, which are the native receipt tokens of the protocol (e.g. LsETH).

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Does the Liquid Collective protocol automatically restake rewards?

Yes. When Ethereum network rewards (including both consensus layer rewards and execution layer fees) are received by the Liquid Collective protocol, they are pulled into the River smart contract and automatically added to the protocol’s deposit queue. This is designed to promote operational efficiency, and is fully onchain and managed by the protocol.

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Is the Liquid Collective protocol audited?

Yes. Liquid Collective engaged independent security firms Halborn and Spearbit to perform security audits of the protocol. Every protocol feature deployed to mainnet has previously been reviewed by at least one of those teams. View all audits

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How can I learn more about the protocol's security, audits, policies, and risks?

Liquid Collective aims to meet high standards of excellence for operations and service by acting with accountability, urgency, and integrity. We recognize the importance of protecting participants' security when using the protocol, and understand that security is primordial to maintaining participants' trust. Learn more on our dedicated Diligence page.

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Is Liquid Collective non-custodial?

Yes, the Liquid Collective protocol is non-custodial at the protocol level. Deposited ETH is sent by the protocol to the Ethereum deposit contract. LsETH is also self-custodied, so LsETH holders have complete control over their LsETH and can pick any preferred custody solution.

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How do I stake ETH to mint LsETH?

Any wallet that has been added to the Liquid Collective protocol's Allowlist can stake ETH on Ethereum to mint LsETH, the liquid staking token that evidences legal and beneficial ownership of the staked ETH and accrued network rewards and fees. Liquid Collective Integrators (such as trading venues and custodians) can add their users' wallets to the allowlist after completing standard KYC/AML checks.

Learn more about LsETH here.

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What can I do with LsETH?

    Hold LsETH and accrue ETH network rewards
    Exchange LsETH for another token
    Use LsETH as collateral to participate in a wide range of DeFi activities

Learn more about LsETH here.

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What is the Slashing Coverage Program?

Liquid Collective collaborated with Nexus Mutual, an industry leader in providing decentralized slashing coverage. Liquid Collective’s Slashing Coverage Program provides web3-native slashing coverage to every LsETH holder. This program is designed to protect against network-wide events—such as network outages—and node operator failures.

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How do the cToken and aToken models compare?

The Liquid Collective protocol uses a cToken model for the LsTokens. The cToken evidences ownership of a staked token plus any accrued staking rewards and less any slashing penalties and fees. The conversion rate between the receipt token and the corresponding tokens continues to reflect the staked tokens + staking rewards — penalties and fees. In contrast, the aToken model, also referred to as a rebase token model, continuously updates the supply of a representative token to track the underlying token 1:1.

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What are the tax implications?

While the status of liquid staking activities under the Internal Revenue Code of 1986, as amended, remains uncertain, certain market views have developed around the U.S. tax consequences of liquid staking, including the following:

  • Depositing ETH and receiving LsETH may not be deemed a taxable event. Unlike a traditional token exchange (e.g., trading ETH for another token), depositing ETH is not a token exchange. LsETH is a receipt token that evidences legal and beneficial ownership of the staked ETH.
  • Additionally, because LsETH is based on the cToken model, the accrual of network rewards may not be deemed taxable events, especially when compared to the unit incremental basis in aToken models (or standard staking) for the accrual of network rewards.

Notwithstanding the views outlined above, all liquid staking participants are strongly encouraged to consult with qualified accountants to understand tax implications of staking and liquid staking.

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How are Node Operators chosen to be funded?

Stake is distributed across Node Operators in a round-robin manner so that the Liquid Collective protocol is supported by a broad and dispersed active validator set. When funding validator keys, the River smart contract considers all validator keys available to be funded, and automatically funds a validator key that belongs to the Node Operator that is currently operating the least number of funded validators.

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Why does the value of LsETH differ from the value of ETH?

LsETH implements the cToken model, which uses a floating conversion rate to reflect the value of accrued network rewards, penalties, and fees associated with the underlying staked tokens.

Liquid Collective's Protocol Conversion Rate is the amount of ETH for which LsETH can be redeemed. The Conversion Rate is independent of the price at which ETH or LsETH may trade on the open market.

Because of the Conversion Rate, LsETH's value can change over time. Unlike some other token models where the staker receives more tokens to represent network rewards earned, with Liquid Collective's LsETH, you keep the same number of tokens as rewards are earned. Learn more about LsETH and the Protocol Conversion Rate here.

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Where is the staked ETH custodied?

Liquid Collective is non-custodial. Ethereum deposited to Liquid Collective is custodied by the Ethereum deposit contract.

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Who is in the validator set? How is the stake distributed?

Liquid Collective launched with an initial set of enterprise-grade, security-focused Node Operators which include Figment, Coinbase Cloud, and Staked. The stake is distributed across Node Operators' validators in a round-robin manner so that the Liquid Collective protocol is supported by a broad and dispersed active validator set.

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Where are withdrawal keys and validator keys (public and private) held?

The Liquid Collective protocol sets a validator's withdrawal credentials to the Liquid Collective Withdrawal contract address when the protocol initiates a deposit transaction for the validator. Once set, this withdrawal address can't be changed, as is governed by the Ethereum protocol when setting Type 1 (0x01) address.

Validator public addresses are submitted to the Liquid Collective Node Operators Registry. Validator private keys are owned and securely managed by the Node Operators.

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How do KYC and Allowlisting functionalities work for the Liquid Collective protocol?

Liquid Collective has partnered with exceptional third party providers to conduct audits on the KYC review process of participating Integrators. Once approved, KYC’d users who custody tokens with participating Integrators may be Allowlisted to deposit to Liquid Collective. Learn more in the permissioning documentation here.

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Where is Liquid Collective’s validator infrastructure located? Does Liquid Collective have pentesting reports, or data center physical access controls?

Liquid Collective’s Service Providers include Node Operators running the protocol’s validator infrastructure. Liquid Collective does not run validator infrastructure, but delegates the task to a set of operators. Part of Liquid Collective’s strategy to provide a secure and enterprise-grade liquid staking solution involves conducting sanctions checks on the protocol’s active validator set. Liquid Collective leverages the support of security-focused Node Operators that institute best practices, including redundant infrastructure, technical support teams, and security posturing (including double-sign protection). You can learn more about the individual compliance resources of the distributed Node Operators supporting Liquid Collective, including any physical access control statements, on their respective websites.

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What does a custodian record on its books upon minting and redemption?

A user's custodian will initially custody ETH on behalf of the user. When the user's custodian deposits the user's ETH into the Liquid Collective protocol, the custodian will receive a corresponding amount of LsETH tokens that evidence ownership of the ETH staked via the Liquid Collective protocol. The Ethereum deposit contract will hold the user's ETH until redemption.

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Where can I view Liquid Collective’s change management and application security statements?

Liquid Collective’s Service Providers include teams providing development and technological services to the Liquid Collective, collaborating in the development of Liquid Collective’s liquid staking offering. Liquid Collective's Service Providers ensure the smooth functioning of the protocol for a seamless and secure Ethereum staking experience. You can learn more about the individual compliance resources of the distributed Service Providers supporting Liquid Collective on their respective websites.

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How is the Liquid Collective protocol secured?

Liquid Collective protocol implements a number of best practices:

  • Best-in-class node operators providing enterprise-grade staking infrastructure
  • Non-custodial staking framework reduces counterparty risk
  • Multiple code audits and partnering with battle-tested technology providers
  • DAO governance and decision making process alongside industry leaders

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Has Liquid Collective received a SOC 2 Type I report, or ISO 27001 certificate?

These resources are more tailored for centralized companies rather than decentralized protocols. You can learn more about the individual compliance resources of the distributed Service Providers and Node Operators supporting Liquid Collective, including any SOC 2 Type 1 reports or ISO 27001 certificates, on their on their respective websites.

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Where is Liquid Collective's validator infrastructure located? Does Liquid Collective have pentesting reports, or data center physical access controls?

Liquid Collective's Service Providers include Node Operators running the protocol's validator infrastructure. Liquid Collective does not run validator infrastructure, but delegates the task to a set of operators. Part of Liquid Collective's strategy to provide a secure and enterprise-grade liquid staking solution involves conducting sanctions checks on the protocol's active validator set. Liquid Collective leverages the support of security-focused Node Operators that institute best practices, including redundant infrastructure, technical support teams, and security posturing (including double-sign protection). You can learn more about the individual compliance resources of the distributed Node Operators supporting Liquid Collective, including any physical access control statements, on their respective websites.

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Where can I view Liquid Collective's change management and application security statements?

Liquid Collective's Service Providers include teams providing development and technological services to the Liquid Collective, collaborating in the development of Liquid Collective's liquid staking offering. Liquid Collective's Service Providers ensure the smooth functioning of the protocol for a seamless and secure Ethereum staking experience. You can learn more about the individual compliance resources of the distributed Service Providers supporting Liquid Collective on their respective websites.

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What is Ethereum staking?

Staking on Ethereum is the process of participating to help secure the Ethereum network, which requires locking up a certain amount of ETH. Validators are responsible for processing transactions, creating new blocks, and maintaining network security. In return, they can earn ETH network rewards in the form of additional ETH. Technological solutions, including liquid staking, allow ETH holders to actively participate in staking on Ethereum without operating the hardware on their own. Learn more in our post here.

From the glossary

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